The dynamic regulation of higher-order chromosome structure governs diverse cellular processes ranging from stable inheritance of gene expression patterns to other aspects of global chromosome structure essential for preserving genomic integrity. Our earlier studies revealed that RNA interference (RNAi), whereby double-stranded RNAs silence cognate genes, plays a critical role in targeting of heterochromatin, a specialized form of chromatin that can inhibit transcription and recombination across large chromosomal domains, to specific locations in the fission yeast Schizosaccharomyces pombe genome. Subsequent genetic and biochemical investigations identified the RNAi-induced transcriptional gene silencing (RITS) complex that provides a direct link between small RNAs and heterochromatin formation. These studies also uncovered surprising interdependency between heterochromatin and RNAi mechanism and led to the discovery of an elegant self-reinforcing RNAi loop mechanism that ensures both transcriptional and post-transcriptional silencing in cis. In this loop mechanism, RNAi machinery operates as a stable component of the heterochromatic domains via tethering of RNAi complexes (such as RITS) to heterochromatin marks (including histone H3 methylated at lysine 9) to destroy repeat transcripts that escape heterochromatin-mediated transcriptional silencing. The processing of transcripts by RNAi machinery generates small interfering RNAs (siRNAs) that are utilized for further targeting of heterochromatin complexes, so the mechanism continues. We have extended these analyses to gain insights into the full spectrum of target sequences affected by the RNAi and heterochromatin machineries. In a comprehensive study, we developed a high-resolution map of heterochromatin distribution across the entire S. pombe genome. These analyses together with mapping of RNAi components and large scale sequencing of siRNAs associated with an RNAi effector RITS complex, involved in heterochromatic silencing, have yielded novel insights into the epigenetic profile of this model eukaryotic genome. In an interesting new development, our recent work suggests that heterochromatic structures are dynamically regulated during the cell cycle. In particular, heterochromatic repeat elements are transcribed during a brief window during the S-phase. Importantly, we have discovered that the transcription of repeats by RNA polymerase II is coupled to the recruitment of heterochromatin complexes, supporting a prominent role for transcriptional machinery in determining the epigenetic makeup of the genome. In another surprising finding, we have discovered that low levels of heterochromatin factors localize broadly across euchromatic regions containing genes and cooperate with RNAi machinery to regulate expression of RNA polymerase II transcripts across large portions of the genome. In particular, we have found that heterochromatin/RNAi factors prevent accumulation of potentially deleterious antisense RNAs. Heterochromatin and RNAi factors are partially redundant in this regard with a histone H2A variant H2A.Z. Loss of Clr4/Suv39h-containing heterochromatin silencing complex or an Argonaute protein alone has little effect on antisense transcript levels, but cells lacking either of these factors and H2A.Z show markedly increased levels of antisense RNAs that are normally degraded by the exosome. These analyses suggest that in addition to performing other functions, heterochromatin and RNAi factors cooperate with H2A.Z to suppress antisense transcripts, which has important implications for diverse chromosomal processes. In another important finding, we have discovered a novel heterochromatin assembly pathway that relies on transcription and RNAs but does not require RNAi machinery. We have discovered that facultative heterochromatin is established at genes required for gametogenesis (which are repressed in vegetative cells), and that its formation is dependent on conserved RNA degradation factors, including a protein complex involved in polyadenylation of transcripts and the exosome that degrade gene transcripts. Importantly, heterochromatin formation by this pathway is modulated in response to signals that induce gametogenesis. Most recently, we have investigated how the cell distinguishes different types of RNA molecules and links their processing to heterochromatin establishment. We discovered core machinery that associates with different factors (including splicing factors) to mediate targeting of mRNA, ncRNA and introns to assemble heterochromatin domains at specific sites throughout the genome. These groundbreaking studies have paved the way for understanding the more complex regulatory networks at work in higher eukaryotes including that involve polycomb silencing, and has provided a foundation for understanding the large scale reprogramming of the genome in response to developmental and environmental cues that occur through modifications of heterochromatin.